The Impact Of Trade Costs On The Export Composition

Trade costs,are broadly defined to include all costs incurred in getting a good to a final user other than the production cost of the good itself.Among others includes transportation cost,policy barriers,contract enforcement cost,legal and regulatory cost and local distribution cost.When there are costs of trade,the pattern of trade may not be well described by the usual measures of comparative advantages.This paper comprehensively measures and analyzes bilateral and national trade cost across 30 countries over the period 1993-2013,then test empirically whether countries' trade costs act like other national endowments by affecting the composition of countries'exports.Firstly,this paper applies a method for measuring bilateral international trade costs(Novy(2013))to a large sample of 30 countries for the period 1993-2013,then calculate national trade costs by using method from Milner&Mcgowan(2013).Secondly,to investigate that trade cost act as a source of comparative advantage,this paper explore econometrically whether industry export shares for 15 two-digit manufacturing industries in 30 countries over the period 1993-1994 tend to be smaller in trade cost sensitive industries in countries with relatively high trade costs.The empirical results shows that national trade costs are an important determinant of export composition and can be viewed as a source of comparative advantage.Low trade cost countries have a comparative advantage in exporting goods which are more sensitive to changes in trade costs.Finally,based on this conclusion,this paper puts forward some policy recommendations:(1)Reducing the trade costs between EU and "One Belt and One Road";(2)Trading companies should adjust their export strategy according to the trade costs and trade cost intensity.